The animated cartoon film is based an episode from the Chinese mythological novel Apotheosis of Heroes.

The story opens with Nezha's father Li Jing, a powerful general of Chentang Pass. His wife, after three-year long pregnancy, gives birth to a ball of flesh shaped like a lotus bud. Believing this to be an ill omen, Li Jing chops open the ball with a single swipe of his mighty sword. A beautiful boy-child springs out.

The Great Monad comes to offer his congratulations. He finds the boy to his liking, so he takes him as a disciple and names him Nezha. He then gives him two magic weapons: the Firmament Ring and the Armillary Damask Silk.

One day when Nezha is seven years old he goes to the nearby seashore for a swim. There he encounters a patrolling Yasha demon, stealing children to feed his master, the Dragon King. Nezha wounds the Yasha demon with his Firmament Ring and tries to save a little girl from its clutches. In a rage, the Dragon King sends his third son to capture Nezha, but the son is killed instead. Now completely infuriated, the Dragon King hitches up with the dragon kings of other seas and unleashes a raging storm, wreaking havoc on Chentang Pass and demanding Nezha's magic weapons. Not wanting to involve others in any further misery, Nezha commits suicide. Thus freed from its physical confinement, Nezha's spirit in a lotus flower and transforms the flower into an exact duplicate of the original Nezha. Now with his newly acquired fire-tipped spear in hand and a pair of fire-and-wind wheels under his feet, Nezha heads straight for the Dragon Palace. In a final indignant fury, he turns the palace upside down and beards the Dragon King.